1996 (1) TMI 44 - HC - Income Tax

Business Expenditure Capital Expenditure Company In Which Public Are Substantially Interested Company Surtax Development Allowance Income Tax Weighted Deduction

Summary

Issues Involved:
1. Relief under section 35B for export inspection agency fee, premium to the Export Credit Guarantee Corporation, and export pre-shipment advance interest.
2. Nature of expenditure incurred for increasing the capital.
3. Allowability of surtax paid as a deduction.
4. Whether the assessee is a company in which the public are substantially interested within the meaning of section 2(18)(b).

Issue-wise Detailed Analysis:

Issue 1: Relief under section 35B
1. Export Inspection Agency Fee:
- The Tribunal upheld the Commissioner of Income-tax (Appeals)'s view that the export inspection agency fee is obligatory for all exports and necessary for obtaining a certificate for export. The Tribunal initially denied weighted deduction based on the fact that the expenditure was incurred in India.
- However, the court accepted the assessee's argument that the fee qualifies for weighted deduction under section 35B(1)(b)(vi) as it involves furnishing technical information for the promotion of export sales. The court thus ruled in favor of the assessee, allowing the deduction.

2. Premium to Export Credit Guarantee Corporation:
- The Tribunal agreed with the Commissioner of Income-tax (Appeals) that Rs. 150 out of Rs. 315 was for covering risk during transit and thus eligible for weighted deduction. The balance was not deductible as it related to the recovery of the invoice amount after export.
- The court supported this view, referencing multiple High Court decisions that payments to the Export Credit Guarantee Corporation for insuring financial capacity of foreign buyers qualify for weighted deduction under section 35B(1)(b)(viii).

3. Export Pre-shipment Advance Interest:
- The Tribunal upheld the disallowance of this claim, reasoning that it pertains to the realization of export price and does not qualify as expenditure on the distribution of goods.
- The court agreed with this view, referencing decisions from various High Courts that pre-shipment advance interest does not qualify for weighted deduction under section 35B.

Issue 2: Nature of Expenditure for Increasing Capital
- The Commissioner of Income-tax (Appeals) and the Tribunal held that the registration fees of Rs. 33,900 for increasing capital were capital expenditure, relying on previous High Court decisions.
- The court disagreed, referencing its own prior decision in CIT v. Kisenchand Chellaram (India) P. Ltd., which held that such expenses are allowable as revenue expenditure. The court thus ruled in favor of the assessee, allowing the deduction.

Issue 3: Allowability of Surtax Paid
- The Tribunal upheld the disallowance of surtax paid as a deduction, following the decision of the Special Bench (Bombay) of the Tribunal.
- The court supported this view, referencing its own decision in Sundaram Industries Ltd. v. CIT, which held that surtax is not deductible under the Income-tax Act. The court thus ruled against the assessee.

Issue 4: Public Interest in Assessee-Company
- The Tribunal upheld the Commissioner of Income-tax (Appeals)'s view that the assessee is a company in which the public are substantially interested, based on prior Tribunal decisions.
- The court disagreed, referencing its own decision in CIT v. Lucas T. V. S. Ltd., which held that the public are not substantially interested within the meaning of section 2(18)(b). The court thus ruled in favor of the Department, stating the assessee is not a company in which the public are substantially interested.

Summary of Judgments:
- Items Nos. 1 and 2 in Question No. 1: Ruled in favor of the assessee.
- Item No. 3 in Question No. 1: Ruled in favor of the Department.
- Question No. 2: Ruled in favor of the assessee.
- Question No. 3: Ruled against the assessee.
- Question referred by the Department: Ruled in favor of the Department and against the assessee.

No costs were awarded.